Updates on Companies Act, 2013
- Abridged Annual Return for Small and One Person companies:
MCA vide notification dated 05th March 2021 has introduced e-Form MGT-7A for the One Person Companies (OPC) and Small Companies for filing their Annual return from the Financial Year 2020-21. For further details, the notification can be accessed from the enclosed link.
2. Central Scrutiny Centre created for scrutiny of Straight through Process Forms:
MCA vide notification dated 18th March, 2021 has established a Central Scrunity Centre (CSC) for carrying out the scrutiny of e-Forms filed in Straight Through Processe (STP) mechanism with effect from 23rd March 2021. For further details, the notification can be accessed from the enclosed link.
3. Remuneration to Non-executive and Independent Directors included:
The Ministry of Corporate Affairs has amended Schedule V of the Companies Act, 2013 vide Companies (Amendment) Act, 2020 to provide for remuneration to Non-Executive and Independent Directors of the company in case a company has no profits or inadequate profits. This amendment has been notified with effect from 18th March, 2021 and the limits for payment of remuneration based on the effective capital of the company were also prescribed. For further details, the notification can be accessed from the enclosed link.
4. Audit trail to be recorded by every company having an accounting software:
Every company having accounting software to maintain its books of accounts shall use such software that has the feature of capturing audit trail of each and every transaction such that the edit log along with the date of each change can be captured. The Board of directors of the company are mandated to provide additional disclosures in their report:
- Details of application made or any proceeding pending under the Insolvency and Bankruptcy code, 2016 during the year along with their status at the end of the financial year.
- The details of difference between amount of valuation done at the time of one time settlement and the valuation done while taking loans from any banks or financial institutions with reasons thereof.
After a week of bringing out the aforementioned amendments, the effective date of these changes have been deferred to those financial years commencing on or after 01st April, 2022 instead of 1st April, 2021. For further details, the notifications can be accessed from the enclosed link.
5. Notification of certain provisions of Companies Amendment Act, 2020:
The offences committed under section 124 (Unpaid Dividend Account) and Section 247 (Valuation of registered valuers) have been decriminalized in the Companies Amendment act, 2020 vide Section 23 and 45 respectively by bringing them under the ambit of in-house adjudication. These amendments have been notified with effect from 24th March, 2021. For further details, the notification can be accessed from the enclosed link.
6. The list of matters to be included in Auditors’ Report broadened:
By virtue of amendment of Rule 11 of the Companies (Audit and Auditors Rules), 2014, the MCA has included a list of matters on which the auditor shall include his views and comments. This amendment shall be effective from 01st April, 2021. For further details, the notification can be accessed from the enclosed link.
7. Enhancement of disclosures in the Financial statements:
MCA vide its notification dated 24th March, 2021 has provided for various additional disclosure requirements that are required to be stated in the financial statements of an entity with effect from 1st April, 2021. For further details, the notification can be accessed from the enclosed link.
8. Aadhar authentication can be done in SPICe+ forms:
MCA vide notification dated 05th March 2021provides an option to perform Aadhar authentication for GSTIN registration in SPICE+ Forms with effect from 05th March 2021. For further details, the notification can be accessed from the enclosed link.
- Investment Limits for Foreign Portfolio Investors in debt securities:
The limits for Foreign Portfolio Investors (FPI) in corporate bonds shall remain unchanged at 15% of Outstanding Stock of securities for Financial Year 2021-22.
The revised limits for FPI investment in corporate bonds is as follows:
Current limit shall continue to be applicable for FPI Investment in Government securities (G-secs) and State Development Loans (SDLs) for financial year 2021-2022 until further announcement. For further details, the circular can be accessed from the enclosed link.
2. Reserve Bank of India extends timeline for processing of recurring online transactions:
In August 2019, the Reserve Bank of India (RBI) had issued a framework for processing of e-mandates on recurring online transactions. Initially it was applicable to cards and wallets, the framework was then extended in January 2020 to cover Unified Payments Interface (UPI) transactions as well.
In the interest of customer convenience and safety in use of recurring online payments, the framework mandated use of Additional Factor of Authentication (AFA) during registration and first transaction. The primary objective of the framework was to protect customers from fraudulent transactions and enhance customer convenience.
It is, however, noted that the framework has not been fully implemented even after the extended timeline. To prevent any inconvenience to the customers, Reserve Bank has decided to extend the timeline for the stakeholders to migrate to the framework by six months, i.e., till September 30, 2021. Any further delay in ensuring complete adherence to the framework beyond the extended timeline will attract stringent supervisory action. For further details, the circular can be accessed from the enclosed link.
3. Master Direction – Amalgamation of Urban Cooperative Banks (UCB), Directions, 2020:
The Reserve Bank of India being satisfied that it is necessary and expedient in public interest so to do, hereby issues the Directions for the amalgamation of Urban Cooperative Banks.
Accordingly, The RBI has discretionary powers to approve the voluntary amalgamation of UCBs.
The decision of amalgamation shall be approved by Two-Third majority of total number of directors of both amalgamating and amalgamated UCBs. While approving, the board shall give particular consideration to the matters like Assets, liabilities and if reserves of amalgamated UCB are incorporated in the books of amalgamating UCB at the existing rate.
Approval shall also be obtained from shareholders by passing resolution by a majority representing two-third of shareholders. Once the scheme of amalgamation is approved it shall be submitted to concerned regional officer. Sanction of Amalgamation will be through an order in writing. A copy of such order will be transmitted to Central registrar under whom the amalgamated UCB is registered as Cooperative society. For further details, the circular can be accessed from the enclosed link.
4. Cheque Truncation System (CTS)
Cheque Truncation System (CTS) is a cheque clearing system undertaken by the Reserve Bank of India (RBI) for quicker cheque clearance. As the term proposes, truncation is the course of discontinuing the flow of the physical cheque in its way of clearing. Instead of this an electronic image of the cheque is transferred with vital essential data. Cheque Truncation System brings elegance to the whole activity of cheque processing & clearing and offers numerous benefits to banks like time and cost savings, cost effectiveness, including human resource rationalization, business process re-engineering and enhanced customer service.
To leverage the availability of CTS and provide uniform customer experience irrespective of location of her/his bank branch, it has been decided to extend CTS across all bank branches in the country. To facilitate this, banks shall have to ensure that all their branches participate in image-based CTS under respective grids by September 30, 2021. For further details, the circular can be accessed from the enclosed link.
- Code of Conduct & Institutional mechanism for prevention of Fraud or Market Abuse
Pursuant to the report of the Committee on Fair Market Conduct (‘Committee’), set up inter-alia to recommend appropriate Institutional Mechanism to ensure accountability of the management / designated persons in case of negligence / failure, necessary changes have been carried out in SEBI (Prohibition of Insider Trading) Regulations, 2015 (herein after referred as ‘PIT Regulations’).
Based on the above, SEBI has introduced the Code of Conduct and Institutional Mechanism for prevention of fraud or market abuse to Stock Exchanges, Clearing Corporations and Depositories (herein after collectively referred as ‘MIIs’) also, on the lines of Regulation 9(1) to 9(4) of PIT Regulations.
The detailed procedures to be followed by MIIs are given in the circular, the link for which is appended below:
2. Circular on Mutual Funds
A regulatory revamp exercise of SEBI (Mutual Funds) Regulations, 1996 (hereinafter called as “MF Regulations”) and various circulars issued there under was undertaken.
Based on the suggestion of the working group constituted for this purpose, Mutual Fund Advisory Committee had made amendments to MF Regulations have been notified vide Gazette notification no. SEBI/LAD – NRO/GN/2021/08 dated February 04, 2021. These amendments to MF Regulations shall come into force on 30th day from the date of their publication in the Official Gazette. The said circular can be accessed from the below mentioned link:
3. Circular on Guidelines for votes cast by Mutual Funds
In order to further improve transparency as well as encourage Mutual Funds/AMCs to diligently exercise their voting rights in best interest of the unit holders and based on the deliberations in MFAC, Mutual Funds including their passive investment schemes like Index Funds, Exchange Traded Funds etc. shall be required to cast votes compulsorily in respect of matters mentioned at Para no.4 (iii) of SEBI Circular SEBI/IMD/CIR No 18/ 198647 /2010 dated March 15, 2010 i.e. for all the remaining resolutions which are not covered at para 1 above, mutual funds shall also compulsorily be required to cast their votes with effect from April 1, 2022. The detailed circular can be accessed from the below mentioned link:
4. Amendments to provisions in SEBI Circular dated September 16, 2016 on Unique Client Code (UCC) and mandatory requirement of Permanent Account Number (PAN):
In order to rationalize the compliance requirement of collecting and maintaining copies of PAN of clients by their respective members and enhance the use of e-PAN, certain provisions of SEBI circular dated 16.9.2016 have been modified which is given in the link below:
5. Rollout of Legal Entity Template
The Central KYC Records Registry (CKYCR) has directed the Registered Intermediaries(RI) to upload the KYC records with CKYCR, in respect of all individual accounts opened on or after August 01, 2016. Changes to the template, as and when required are released by CERSAI. CKYCR, vide its communication no. CKYC/2020/11 dated January 04, 2021 has specified that since it is fully operational for individual clients, it has been decided to extend CKYCR to Legal Entities (LE)as well. Accordingly, RIs shall upload the KYC records of LE accounts opened on or after April 01, 2021 on to CKYCR in terms of Rule 9 (1A) of the Prevention of Money Laundering (Maintenance of Records) Rules, 2005. For further details, please go through the circular available in the following link:
6. Review of norms regarding investment in debt instruments with special features, and the valuation of perpetual bonds.
Mutual Funds invest in certain debt instruments with special features viz. subordination to equity (absorbs losses before equity capital) and /or convertible to equity upon trigger of a pre-specified event for loss absorption. Additional Tier I bonds and Tier 2 bonds issued under Basel III framework are some instruments which may have above referred special features. The debt instruments having such special features, which otherwise are Non-Convertible Debentures, may be treated as debt instruments until converted to equity.
Prudential investment limits have been decided for such instruments which are given in detail in the circular available in the enclosed link.
7. Streamlining the process of IPOs with UPI in ASBA and redressal of investor grievances
SEBI has introduced the use of Unified Payment Interface as an additional payment mechanism with Application Supported by Blocked Amount (ASBA) for Retail Individual Investors along with timelines for listing within six days of closure of issue (T+6).
Certain issues were identified based on the consultation with market participants and in order to address the same and to have a uniform policy so as to streamline the reconciliation process, the following circular given in the link was issued.
8. Guidelines for Business Continuity Plan (BCP) and Disaster Recovery (DR) of Market Infrastructure Institutions (MIIs)
SEBI has prescribed framework for Business Continuity Plan (BCP) and Disaster Recovery Site (DRS) for Stock Exchanges, Depositories and Clearing Corporations.
With advancement in technology and improved automation of processes it was felt that the extant framework needs to be re-examined with a view to reducing the time period specified for moving from Primary Data Centre (PDC) to DRS. The modified framework for BCP and DR released by SEBI is available in the enclosed link.
9. Clarification on the valuation of bonds issued under Basel III framework:
SEBI has stated that the maturity of all perpetual bonds shall be treated as 100 years from the date of issuance of the bond for the purpose of valuation. Based on the representation of the Mutual Fund Industry to consider a glide path for implementation of the policy and request of other stakeholders, SEBI vide circular dated 22nd March, 2021 the deemed residual maturity for the purpose of valuation of existing as well as new bonds issued under Basel III framework was changed. For further details, the circular can be accessed from the enclosed link.
10. Review of Delivery Default Norms:
Based on the representations received from market participants in the commodity derivatives segment for standardization of delivery default norms, strengthening the deterrent mechanism and ensuring adequate compensation to the non-defaulting counterparty, SEBI vide circular dated 23rd March, 2021 decided the following;
a. In agricultural commodities, the penalty for delivery default by seller shall now be 4% of the settlement price plus replacement cost.
b. In non-agricultural commodities, the penalty for delivery default by seller shall remain at 3 % of settlement price plus replacement cost.
c. In agricultural as well as non-agricultural commodities, the provisions for levy of penalty on delivery default by buyer, as mentioned under para 4.2 of the circular, shall be put in place by the Clearing Corporations.
In light of decisions mentioned above, clause 3(d) of Circular SEBI/HO/CDMRD/DRMP/CIR/P/2016/90 dated September 21, 2016, has been modified.
11. Combating Financing of Terrorism (CFT) under Unlawful Activities (Prevention) Act, 1967 – Directions to Stock Exchanges, Depositories and all registered intermediaries:
In order to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets, the order dated February 02, 2021 issued by GOI in relation to implementation of Section 51A of the UAPA, 1967 is brought to notice for strict compliance.
12. Prior Approval for Change in control: Transfer of shareholdings among immediate relatives and transmission of shareholdings and their effect on change in control:
SEBI vide circular dated 25th March, 2021 has addressed to Stock Exchanges, Depositories and intermediaries and clarified whether transfer of shareholding among immediate relatives and transmission of shareholding would result in change in control requiring prior approval from SBI in the following circumstances:
1. Transfer /transmission of shareholding in case of body corporate type intermediary
2. Transfer /transmission of shareholding in case of a proprietary firm type intermediary
3. Transfer /transmission of ownership interest in case of partnership firm type intermediary
Details can be read from the circular placed in the website of SEBI using the following link
13. Transfer of business by SEBI registered intermediaries to other legal entity:
SEBI vide circular dated 26th March, 2021, clarified on Transfer of business by SEBI registered intermediaries to other legal entity.
14. Circular on Guidelines pertaining to Surrender of FPI Registration:
In order to have a uniform market practice for processing of such surrender requests, DDPs shall adhere to the following additional guidelines:
a) While making an application to SEBI for seeking “No Objection Certificate” (NOC) for surrender, the DDP shall confirm the following with respect to the FPI:
- Accounts held by the applicant in the capacity of FPI have NIL balance and are blocked for further transactions. Further, the CP code of the FPI is also blocked.
- There are no dues/ fees pending towards SEBI.
- There are no actions/ proceedings pending against the said applicant.
b) DDP shall ensure that:
- all the accounts (including bank account and securities account) held by the applicant in the capacity of FPI are closed; and
- the CP code is deactivated within 10 working days from the date of receipt of NOC from SEBI
15. Reduction in unblocking/refund of application money:
Vide circular dated 31st March, 2021, it has been notified that in Regulation 45(2), 86(2), 141(2), 202(2)(b) and 202(3)(a) and (b) the words ‘fifteen days’ shall be read as ‘four days’ and in Regulation 53(2), 94(2), 149(2), 208(2), 272(2) the word ‘seven days’ and ‘eighth day’ shall be read as ‘four days’.
16. Master Circular on Surveillance of Securities Market:
SEBI issued Master Circular on Surveillance of Securities Market on 1st March, 2021 in order to enable the users to have access to all the applicable circulars/directions at one place.
The contents of the Master Circular are Trading Rules and Shareholding in dematerialized mode, unauthenticated news circulated by SEBI Registered Market Intermediaries through various modes of communication, SEBI (Prohibition of Insider Trading) Regulations, 2015, Annexures and Schedule 1 – List of Circulars.
17. SEBI Board Meeting dated 25th March, 2021:
The SEBI met on 25th March and certain important decisions were taken at the meeting. The press release of SEBI meeting is also mentioned below. The brief decisions will be circulated as a separate write-up.Click here to access the press release.